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Technology Stocks : WCOM -- Ignore unavailable to you. Want to Upgrade?

To: Jacob Snyder who wrote (8779)	6/18/2001 9:06:27 AM
From: avanti77	Read Replies (2) \| Respond to of 11568

there isn't much potential downside left in WCOM Agreed. I'd also like to draw your attention to the recent upgrade (June 8) of the telecom services sector in Briefing.com sector ratings. Here is the text on that: Comment: We are upgrading the Telecom Service sector to Slightly Outperform from Market Performer. Briefing.com argues that while everyone focusses on the semiconductor cycle, the bandwidth cycle is being ignored. This is not surprising given that with bandwidth having only recently emerged as the leading technology paradigm; we have yet to see what a cycle looks like. But our guess is that it looks a lot like what we're seeing right now. First , there was an exploding supply of bandwidth triggered by easy capital that financed a wave of telecom carrier start-ups. Now, those start-ups are either failing or cutting back dramatically to avoid failure. It's the bandwidth equivalent of semiconductor fabs being taken off line -- growth in supply is slowing, setting the stage for the next up-cycle. We see three key signs that point to an improving environment for incumbent telecom service providers that can survive the downturn. 1) The slowdown in supply growth just mentioned suggests that competitive pressures on incumbent carriers will abate, yet demand growth will most likely renew its strong growth trend after the current cyclical lull. Support for this argument was recently provided by AT&T's (T) decision to up basic residential rates after years of price wars. 2) The cost of upgrading telecom networks to improve efficiency is falling: Qwest (Q) has been one carrier that has dropped capex plans due largely to the fact that it can get the same gear for less; in short, it's a buyer's market for telecom equipment. 3) Incumbency and long-term viability have become a key competitive advantage: ask any CIO or CTO these days, and you will find that they are spending as much time looking at the financials of a potential carrier as they are looking at the service offering, be it colocation, internet service, or local phone -- businesses want to avoid the headaches of a service provider closing its doors. As we look at the telecom service sector, the key factor right now is viability -- emerging carriers with huge debt burdens and negative cash flow are too risky. The second key is the carrier's ability to build and maintain a cutting edge network capable of delivering broadband data services. Two companies that best meet the criteria are Qwest (Q) and Broadwing (BRW), with Global Crossing (GX) and Worldcom (WCOM) also looking attractive. Baby Bells such as SBC (SBC) and BellSouth (BLS) are less exciting candidates, but should also benefit from these trends. Our sector upgrade should not be seen as an endorsement of all stocks in the sector: emerging carriers such as CLECs (competitive local exchange carriers) are a very risky proposition, and many will go bankrupt. The factors noted above also do not apply to the wireless market, though we still like some stocks in that group such as Nextel (NXTL). In playing the expected upturn in the bandwidth cycle, it will be important to focus on the companies that can survive and innovate, which is why we would opt for a handful of select names and bypass the rest. Additionally, S&P fair value for WCOM is $23.5. In a generally overvalued market, WCOM looks like a very decent value play with 35% upside on a fair value basis -- which doesn't take into account any premium above fair value as a potential takeover candidate. The irony in the recent loss of share value is that WCOM and T are beneficiaries of the networking, optical crisis in that the survivors left in that sector will be offering highly competitive (cheap) prices to the surviving telecom services companies when they're ready to begin an upgrade cycle. In the meantime, as of the fall quarter, year over year comparisons for the telecom service companies become fairly easy to achieve, particularly given the fact that it's the service providers who are curtailing capex spending (causing all the pain and revaluation for the equipment makers). Institutional ownership is on the increase: marketguide.com When the market panics about telecom it continues to throw all areas of telecom into the same basket, but as Briefing makes the case, when the fear and hype is stripped away, the service providers will strongly benefit from the pricing wars in the telecom equipment sector where it will be a buyer's market for some time to come. Thanks to all here for an intelligent discussion.